To Tap or Not to Tap Your Retirement Savings?

It’s tough times out there for many Americans. We’re seeing record numbers of people filing for unemployment. For those who have lost jobs, it can be scary to think about where the finances will come from to continue paying things such as rent, mortgages, grocery bills, etc. Thus, during these times, it can be tempting to tap into retirement savings, especially if you have managed to build up a decent-sized nest egg. While I strongly, strongly discourage you from using your retirement savings to get you through these tough times, I realize that it may really be the only option for some. If you find that you absolutely are certain you will need to take some money out of your nest egg to get you through a jobless period, there are some new provisions in the CARES Act recently passed by Congress that can help you. First off, Congress has increased the amount you can take out of your employer-sponsored 401(k), if you have one. The limit used to be $50,000, but they have temporarily expanded it to $100,000 and will allow you to suspend payments on repayment for up to one year. It also allows for the terms of the loan to be stretched from five to six years. Again, this is all temporary under the CARES Act. Another important provision of the recent legislation is that it allows you to take a distribution from other retirement accounts you have without having to worry about the 10% penalty if you are under 59-and-a-half. It should be noted that there is a limit to the size of the distribution and that is $100,000. Now, again, I am not encouraging you to hit up your retirement savings immediately when trying to get through a period of unemployment. Rather, I’m sharing these two important provisions with you so that you are aware of the possibilities to get through tough times. Of course, if you feel that you need to tap into your retirement savings, you should consult with a retirement professional or financial advisor to make sure it’s the right decision and that you understand what you are about to do.

Do You Understand Your Employer Retirement Benefits?

Many companies offer retirement benefits. Those benefits can range from simply offering 401(k)s to a wide range of financial resources that can include financial planning and multiple retirement account options. Furthermore, with legislation working it’s way through Congress that could allow small businesses to band together to offer retirement savings plans, more Americans could find themselves working for an employer that offers such benefits. Regardless of the size of the company you work for, if you are taking advantage of any employer offered retirement benefits, you need to make sure that you understand what those benefits entail and what their limitations are. There are many ways to go about that. One easy way to understand your retirement benefits is to read over any paperwork you received or filled out when you first entered the plan (which you should have kept in a safe place or be able to access online). That paperwork most likely will tell you what you can and cannot do. If you have questions beyond that, you should be able to reach out to the custodian of your retirement plan. If you work for a larger company, you may have a benefits manager that you can reach out to. While they may not know all the answers, they should at least be able to point you in the right direction or get you in touch with a plan custodian who can help. If your company offers retirement planning talks or events centered around planning for retirement, you should try to attend those if possible. If you are new to the retirement savings game, try to make sure that you understand as much as you can about your retirement savings plan, particularly what you can do with it should you choose to leave your employer as well as your ability to change contribution rates. If you are not new to the retirement savings game and have had a retirement plan through your employer for years (or decades), you will want to make sure that you stay abreast of any changes to those plans and how such changes could potentially impact your future distributions or ability to rollover the plan. As always, if you need help with deciding what to do with your employer retirement plans or you want to combine it with an IRA, you should speak with a certified financial planner.

You Know RMDs, But Do You Know RBDs?

You’re probably familiar with what a required minimum distribution (RMD) is, but do you know what a required beginning date (RBD) is? If you guessed that it’s the date that you begin taking your RMDs, then you are spot on. Knowing your RBD–and any associated options–can be almost as important as knowing how much you need to take out for your RMD. If you have an IRA, your RBD is April 1 of the year following the year in which you turn 70 1/2. There are no exceptions to that rule, unfortunately. However, if you have an employer plan (i.e. a 401(k)), you may be able to push back your RBD if you continue working or if you have a 403(b), you may be able to push back the RMD start date under the “old money” exception. If you have both an IRA and a retirement plan through an employer, then you may have more than one RBD, depending on whether you intend to take advantage of a “still working” exception or not. If you have questions about your RBD or are interested in discussing whether you may be able to delay it, you should speak with a certified financial planner or with your plan custodian.

Organize Your Retirement Accounts Through Consolidation

Yesterday, I wrote about diversifying your retirement savings by having more than one type of retirement account. While such a concept is a good idea, it also needs to be done reasonably. While it’s okay to have more than one retirement account, it’s not a good idea to have multiple types of the same account or to have so many retirement accounts that you can’t keep track on them. If you find yourself in such a situation, you should consider streamlining your retirement accounts by doing a conversion or rollover so that you only have two, maybe three, accounts. Thus, if you have multiple IRAs, you should strongly consider rolling them over into one account. This will not only allow you to better track your money, but it will also save you on paperwork as one IRA means only one beneficiary document and one statement. Same thing goes with 401(k)s. If you find that you have multiple 401(k)s after working for multiple employers, I would strongly urge you to merge them all into one account. Again, this will save you time and paperwork hassle. This is even more important as you get closer to retirement and have to begin taking required minimum distributions (RMDs) as it will make it easier to calculate your distribution and ensure that you are meeting requirements. While this may seem a bit contrary to what I wrote about yesterday, it is really intended to make things easier for you. Furthermore, yesterday I was encouraging diversification and having multiple accounts of different types and not multiple accounts of the same type. This time of year is a good time to consider streamlining your retirement accounts also because tax season is right around the corner and you probably are going to review your account paperwork very soon, if you haven’t already. If you need help with streamlining your retirement savings, as always, you should speak with a certified financial planner or retirement expert.